Markets have spent the past 24 hours receiving what should have been massively negative news for the dollar. Negotiators from Washington and Tehran have reportedly finalized a draft framework that would extend the current ceasefire, reopen the Strait of Hormuz, lift restrictions on Iranian oil exports, and reduce one of the biggest geopolitical risks hanging over global markets. This development led to another decline in oil prices, with Brent crude approaching a level below $90 per barrel. Meanwhile, enthusiasm surrounding artificial intelligence has continued to push global stocks higher, pushing major stock indexes in the United States and Asia to new records.
Despite all this, the dollar remains remarkably resilient. This may be the reason Forex traders do not buy peace rhetoric as strongly as stock investors. The proposed framework remains conditional on political approval, and the two sides continue to communicate with caution. Currency markets appear unwilling to completely remove the geopolitical risk premium until a formal agreement is signed and implemented. The memory of repeated setbacks throughout the conflict prevents traders from completely abandoning defensive positions.
And most importantly, The market is increasingly focusing on the inflationary consequences of the conflict rather than its potential resolution. The Middle East war has been sending energy prices sharply higher for months, and now the resulting inflationary pressures are showing up in official data, forcing the Fed to move away from an easing bias. Even if oil prices continue to fall from here, that does not erase already recorded inflation or the Fed’s need to ensure inflation expectations remain steady. In this environment, US bond yields remain high and continue to support demand for the dollar.
This dynamic helps explain why EUR/USD remains confined to a relatively narrow range Despite the favorable conditions for the euro. The pair has recovered from the 1.1575 level but is still unable to overcome the resistance level at 1.1660. As long as this barrier holds, the recovery can still be viewed as a consolidation within a broader decline from 1.1848.
On the downside, a strong breach of 1.1575 would reinforce the bearish case and target a return towards the bottom at 1.1408.
Conversely, a decisive break above 1.1660 would indicate that the decline from 1.1848 has already completed as a correction at 1.1575, and opens the way for a stronger recovery towards down channel resistance (now at 1.1725) at least.
